Hutch bidding to go the Corus way

The nail-biting race that the Tatas won to acquire Anglo-Dutch steel maker Corus Group has apparently inspired Hong Kong billionaire Li Kai Shing, who is trying to squeeze out the best price for the majority stakes his group controls in mobile phone operator Hutchison Essar Ltd. Li's Hutchison Telecommunications International Ltd (HTIL) has decided to follow an open bidding model similar to the one followed by Corus.

According to highly placed sources close to the deal, the HTIL will also fix a minimum reserve price so as to eliminate bidders who are not serious. HTIL is holding its shareholders’ meeting in the third week of March to take their approval for divestment of their assets in India. Informed sources said that after receiving the approval, HTIL would request interested parties to submit their bids, which is expected to be completed by February-end. After receiving the bids, they will ask the bidders to join the open auction following the Corus Model, where Tata Steel outbid Brazilian steel maker CSN by five pence per share in a see-saw battle.

However, unlike the Corus deal, where there were only two bidders in the auction, in this case, there are likely to be four bidders -- Vodafone, Reliance Communications, the Hinduja group and Essar.

The sources said that barring the Hindujas, the other three bidders have completed the due diligence exercises. The Hindujas started the process last Monday and are expected to complete it by Wednesday.

After the completion of the due diligence process, HTIL will call a board meeting to discuss the issue and convene an extraordinary general meeting (EGM) in the third week of this month. After the EGM, the bids will be submitted and HTIL in consultation with the bidders will decide the rules of game for its planned open auction. The sources said that the enterprise value of the transaction would be in the vicinity of $18 to 20 billion, including a debt component of around $1 billion on the balance sheet of Hutchison Essar. The minimum reserve price is expected to be around $14 billion. The transaction is expected to completed by the end of this financial year.

Taking a cue from Bharti Airtel, investment bankers feel the transaction value may be around $20 billion. Bharti Airtel has a current market value of around $33.5 billion or Rs 1,48,105 crore. It has a subscriber base of 33.7 million. Of this, mobile subscribers are 32 million and the rest are fixed line and international long distance customers. On the other hand, Hutchison Essar has a subscriber base of 23.3 million. UBS Investment Research in its recent report has suggested that the "implied valuation" of Hutchison Essar is $20 billion.